In Africa, a Telco Disruptor Looks for Gaps Amongst Giants

Safaricom is offering free Wi-Fi to Kenyan workers who commute on private minibuses.

Sven Torfinn for The Wall Street

Africell, a small African mobile telecommunications company run from Lebanon, is planning to expand across Africa’s fast-growing telecommunications markets. To do that it will need to take on Africa’s biggest operators by playing the long game, says its Lebanese-American chief executive.

By contrast, Africell is a market leader only in Sierra Leone and Gambia, where it has over 60% share of active subscribers in each, and has over 5 million subscribers in the Democratic Republic of Congo, with a population of over 67 million.

On Tuesday, it received regulatory approval to move into Uganda, a smaller market of around 37 million people.

But Vodafone and Airtel can rest easy in the biggest African telecom markets. “We cannot do Ghana, Nigeria, South Africa. They require so much money,” says Chief Executive Ziad Dalloul, adding that the company is focused on smaller African countries.

Ziad Dalloul, CEO of Africell.

Africell

Dalloul says he is targeting markets with low smartphone penetration which allow Africell to make quick inroads in less well-developed, smaller telecom economies where it doesn’t have to invest heavily in vast telecom networks.

In Africa, where almost all consumers use cellphones on a pre-paid basis rather than on long-term contracts, telecom operators face tough subscriber revenue growth conditions, says Dalloul. But soaring growth in demand for data services, as more young Africans get online, and increased smartphone penetration will drive up growth, he adds.

Dalloul runs the operator from the office of the telecom group’s owners, Beirut-based holding company Lintel. Dalloul started in Lebanon’s telecom market but quickly realized the gains to be made in Africa, and now focuses exclusively there.

With annual sales of more than $220 million growing at more than 30% year-over-year, Africell–one of the largest privately-owned telecom companies in Africa–started in Gambia in 2001. It expects to have 15 million mobile subscribers next year, up from 10 million now, still small when compared with Vodacom—the U.K.-based mobile giant Vodafone’s unit, based in South Africa—which has over 50 million customers across Africa’s largest markets.

In Gambia, Africell has 1.3 million subscribers, fighting off competition from Comium Mobile—run by Dalloul’s brother–Qcell and a government-backed service. In Sierra Leone, with 2.7 million customers, it is ahead of Bharti Airtel—the Indian telecom giant—and Comium.

“We avoid having dinner,” jokes Dalloul, on the rivalry with his brother.

In the DRC it is playing catch-up to Vodacom and Airtel, but Dalloul says his company is making inroads.

In May, Africell paid $12 million for French telecom giant Orange’s underperforming operations in Uganda. It takes on a subscriber base of more than 600,000, which is a “distant third,” says Dalloul, to MTN Group and Airtel.

“Orange’s board decided to withdraw from some losing operations. For us, it was a good opportunity. They have a very good network, with third-generation and long-term evolution [wireless technology],” he says.

“We think that we can turn it around in around a year.”

On expansion, the CEO said: “We hope to achieve [a footprint in] another at least two markets within the next three years,” said Dalloul, declining to name the markets identified.

Still, targets—whether gathered by acquisition or partnership–come with strict criteria.

“[A target is] any market that has less than 50% mobile penetration. We [also] don’t like to spend so much on building [radio] towers and antennas. We might as well use this money [for] equipment and rolling out a network quicker,” he says.

“The majority of the population in Africa is young. We see schoolboys and schoolgirls from very modest backgrounds all today carrying smartphones and iPads. They are all using it for Internet browsing, Facebook and WhatsApp. You would be amazed,” says Dalloul.

“For the first time we see a good boost of revenue per subscriber mostly because of data,” he adds. “We see data [use] doubling every six months.”

“I see a boom in a couple of years in smartphones in Africa,” says Dalloul, estimating penetration will reach 35% to 40% across its markets, up from 10%.

In a previous version of this article, the company name of Africell was incorrectly given as Africacell in one reference. Africell also has over 60% of active subscribers in Sierra Leone and Gambia, not by the metric of share of sales as mentioned.